In June, the Temporary Committee for Reviewing Proposals for Reforming Brazil’s Administrative and Tax Processes approved an alternative draft for the bill regulating tax and customs arbitration. This bill, known as PL 2,486/2022, is part of a series of proposals developed by the Commission of Legal Experts (CJADMTR) aimed at modernizing and streamlining Brazil’s administrative and tax processes.
What Is Tax Arbitration?
Tax arbitration is a mechanism that allows disputes between taxpayers and tax authorities to be resolved by arbitrators instead of through traditional judicial processes. It can be applied at any stage of the tax credit lifecycle, from notification of an infraction to litigation. Arbitration decisions are final and cannot be appealed or require judicial ratification, except in specific cases, such as when there is an uncontested acknowledgment of debt.
Benefits of Tax Arbitration
Brazil’s high volume of judicial cases involving tax matters underscores the need for alternative mechanisms like arbitration. This approach can significantly improve the speed and efficiency of resolving tax disputes.
Arbitration offers increased agility, reduced procedural costs, and enhanced legal certainty for both taxpayers and the government, fostering a more trustworthy and predictable tax environment.
Regulation and Scope
The bill mandates that tax authorities will determine which matters are eligible for arbitration. Each governmental entity will set specific guidelines, including criteria for value thresholds, procedural stages, request protocols, and rules for selecting arbitration panels and arbitrators. Information on arbitration cases will be public, except for matters involving industrial or commercial secrets or those deemed confidential under Brazilian law.
Arbitration Procedure
Arbitration will be institutional, excluding “ad hoc” arbitration. The process is initiated upon the arbitrator’s acceptance of their appointment. Submission to arbitration is formalized through an arbitration agreement, which suspends administrative and judicial proceedings related to the tax credits under arbitration.
Principles and Timelines
The arbitration process must adhere to principles such as the right to a fair hearing, equality of the parties, arbitrators’ impartiality, and their free judgment. The draft establishes minimum response periods of 30 business days for initial claims and maximum deadlines of 60 business days to deliver a decision after the evidentiary phase. The entire arbitration process must conclude within 12 months.
Costs and Arbitration Tribunal
Arbitration costs will be initially covered by the taxpayer but may be reimbursed depending on the outcome. The arbitration tribunal will consist of three arbitrators: one appointed by the tax authority, one by the taxpayer, and a third chosen jointly to preside over the tribunal.
Arbitration Decision
Arbitration decisions must include a case summary, reasoning, date, location, and dispositive provisions. Decisions against the government will be settled through either precatory payments or tax offsets, as chosen by the taxpayer. The law also provides for reduced fines to encourage arbitration participation.
Conclusion
For tax arbitration to be effectively implemented, it is crucial to adapt existing norms and establish specific legislation to govern the process. This would ensure the mechanism’s security and efficacy, encouraging its adoption by both taxpayers and tax authorities.